Contemporary Management Research

Pages 125-140, Vol. 6, No. 2, June 2010

Understanding Reasons for Employee Unethical Conduct in Thai

Organizations: A Qualitative Inquiry
Phongstorn Ermongkonchai
Chulalongkorn University
E-Mail: phongstorn.ermongkonchai@sasin.edu
ABSTRACT
Of the recent trends in corporate governance, the ethical conduct of managers is
one of the most challenging tasks facing business enterprises. This research identifies
major themes in order to understand reasons for employee misconduct. From eight
large size business enterprises, in-depth interviews were conducted among human
resource managers who investigated severe unethical conducts in companies which
results in employee termination. The findings indicate that the main reason of
employee misconduct was identified with personal or financial gain. The main themes
of misconduct are identified as social norms, process loopholes, small scale
dishonesty and pressure for performance. The qualitative research findings identify
emerging patterns of reasons for employee misconduct consistent with agency theory
and psychological contract theory.
Keywords: Business Ethics, Compliance, Corporate Governance, Corporate Social
Responsibility, Human Resource Management, Thailand
RESEARCH BACKGROUND
Business ethical conduct is a vital part of Corporate Social Responsibility
(Carroll, 1991). As an integral part of the community, business has the moral
responsibility to conduct business activities that are accountable to stakeholders, such
as shareholders, customers, suppliers, government authorities, employees, and the
public (Jones & George, 2008). If the firm fails to do so, it will find itself
encountering survival threats while facing severe penalties or damage to the firms
reputation. Examples of such include the bankruptcy of Enron and WorldCom in the
U.S. (Anand, Ashforth, & Joshi, 2004), customer boycotts (Nash, 1981), high

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employee turnover (Veiga, Golden, & Dechant, 2004) and public disaster (Gellerman,
1986).
Conceptually, business ethics practice can be contradictory to the traditional
business belief of maximizing profit (De George, 2006). In addition, if the firm does
not have the correct set of norms concerning ethical conduct, managers may indeed
justify misconduct and socialize newcomers into corrupt practices (Anand, Ashforth
& Joshi, 2004). Business leaders and human resource managers are requested to lead
organizational integrity by being role models and taking affirmative action (Thomas,
Schermerhorn & Dienhart, 2004).
At the international level, the issue of corporate governance has drawn great
interest from international organizations worldwide. In the case of Thailand, one
indicator for the competitiveness of nations gives the country a much higher ranking
than it receives for ethical conduct. In 2007, Thai competitiveness ranked 28th among
131 participating nations, 1st being the most competitive nation (World Economic
Forum, 2007). This contrasts markedly with another indicator on corruption
perception which reports Thailand as having a significantly lower ranking of 84th
among 179 nations, the 1st being perceived as the least corruption (Transparency
International, 2007). This is supported by research conducted in Thailand indicating
that both the public and private sectors are under criticism for their activities being
intertwined with corruption (Phongpaichit & Piriyarangsan, 1994). At the same time,
Thailand is ranked as one of the worst for software piracy in the Asia Pacific region
with a piracy rate of 80%, with no improvement over the past 4 years (Business
Software Alliance, 2006). These indicators suggest that there is a need to improve the
current situation of unethical conduct through management practice in Thailand.
At the firm level, unethical conduct is more challenging than ever with stringent
rules and regulations having been imposed on organizations elevating the business
costs of ethical failure. For example, in the U.S. and Japan, business leaders are
legally held accountable for the financial report (Sarbanes-Oxley Act, 2002). In
Thailand, the Revenue Department has established an auditing unit specializing in
large taxpayer organizations (LTOs). A recent study has indicated that the costs of
ethical failures imposed on organizations are not limited to government fines and
penalties, but may include customer defections, loss of reputation, loss of employee
morale, increased employee turnover, government cynicism and further regulation
(Thomas, Schermerhorn, & Dienhart, 2004; Cone-Roper Poll, 2002). In this study, the
research aims to investigate the perceived reasons behind unethical practices and
human resource practices to improve business conduct in Thai business organizations.

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LITERATURE REVIEW
Business Ethics
Business ethics is the guiding principles on what is the right or appropriate way
to behave in a situation (Jones & George, 2008). Companies use business ethics
principles to guide employee business practices and to foster the desired organization
culture.
There is no universally agreed definition of ethics, however, De George (2006)
has proposed the following definition:
Ethics is a systematic attempt to make sense of our individual and social moral
experience, in such a way as to determine rules that ought to govern human
conduct, the values worth pursuing, and the character traits deserving
development in life (De George, 2006, p.19-20).
In practice, companies publish the desired corporate ethics and educate their
employees on them. At the same time, the management of the workplace is
encouraged to establish and maintain open communication, to reward desired
behaviors and to take action against any wrongdoing.
Introduction to Employee Unethical Conduct
As concerns employment, the employee has the basic duty to perform his or her
job with contractual and moral obligations. Employees are morally obliged to obey the
law, moral and civil law at work and at other times. In ethics management, companies
organize education and promotion programs including issuing the necessary
documents such as the code of ethics, work rules and work procedures as employee
practice guidelines. Despite these efforts, employee misconduct is not uncommon in
organizations.
Basically, managers and employees have the good intentions to conform to
acceptable social values. Most managers and employees behave by a personal code of
conduct that includes certain principles about integrity, regard for others, and keeping
commitments. Employees refrain from engaging in actions that might compromise
their reputations, careers, or organizations. Unfortunately, at times, employees
challenge the rules through their misconduct. It is a challenge to understand and
predict employee misconduct in the workplace.
Misconduct is defined as any behavior that violates the law or organizational
ethics standards (Ethics Resource Center, 2005). In 2005, the National Business

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Ethics survey in the U.S. indicated that 52% of more than 3,000 workers observed one
or more types of misconduct by their colleagues. In the same survey, 36% of
employees saw at least two events in the same year.
Verschoor (2003) reported a study in the U.S. by the Association of Certified
Fraud Examiners that fraud cost as high as 6% of revenue, which projected to a value
of 600 billion dollars and an average of 4,500 dollars per employee. The survey
indicated 80% of fraudulent acts involve asset misappropriation. Cash was the
targeted asset 90% of the time, and the average scheme lasted 18 months.
Prior research has identified various forms of misconduct. According to
organization exit surveys, employees have reported misconduct as illegal corporate
activities, actions directed against employees, illegal human resource activities
(racial/sexual harassment, mistreatment of employees having AIDS, etc.), smallerscale dishonesty, and mistreatment of internal and external constituents (Giacalone,
Knouse & Pollard, 1999). In another survey among 3,075 workers, additional
observance were identified such as carelessness with confidential/proprietary
information, activities posing conflicts of interest, substance abuse, embezzlement,
and others (Kaptein & Avelino, 2005).
Theories on Misconduct in the Workplace
Scholars from multidisciplinary backgrounds have tried to understand and predict
misconduct in the workplace. Studies were conducted on how and why misconduct
occurred. Research can be separated into three important themes from the fields of
industrial psychology and organization science. The three competing theories that are
most influential in explaining human motivation towards misconduct are personality
trait theory, agency theory, and psychological contracts theory (Kidder, 2005).
Personality Trait Theory
For trait theory, individual behavior is the result of inherited or acquired traits.
Trait theorists subscribe to the premise that certain traits will be disposed to react to a
given situation in a certain way (Kidder, 2005). Trait research has provided relative
stable and predictable outcomes (McKenna, 1994; Kidder, 2005). For example, an
individual with the personality traits of conscientiousness shows the qualities of
dependability, carefulness and responsibility (Ones, Chockalingam & Schmidt, 1993).
In terms of criticism, trait theory has been questioned on its research design and
on its ignorance of situational variables (Davis-Blake & Pfeffer, 1986; McKenna,
1994). Furthermore, research by McAdams (1992) has pinpointed the limitations of

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personality trait theory, namely its inability to predict behavior, its failure to provide
causal explanations of behavior, its disregard of the contextual and conditional nature
of the human experience.
Agency Theory
Agency theory has been developed from economic assumptions of self-interest
behavior and utility maximization with consideration of the situations that influence
employees behavior. Agency theory suggests that the employer as the principal
wants to obtain maximum performance from the employee as the agent. This is in
direct contrast to the employee, who is presumed to put in minimal effort. Therefore,
agency theory assumes that agents will behave opportunistically if given the chance
(Rousseau & McLean Parks, 1993). For example, employees will always shirk or
misrepresent their capabilities if they can get away with doing so. Agency research
provides managerial implications to set up proper monitoring or controlling
mechanisms to reduce misconduct (McKenna, 1994).
Agency theory has been criticized for its assumption of overlooking intrinsic
human motivations in a positive manner, such as employees needs for achievement,
exercise of responsibility and authority and recognition from peers, bosses and
organizations (McClelland, 1961; Herzberg, 1959). From the organization behavior
viewpoint, agency theory has two major limitations. Firstly, the agency theory lacks
any consideration of the organization to facilitate effective actions by employees, such
as providing clear, consistent role expectations, authority and empowerment
(Donaldsons & Davis, 1991). Secondly, the theory underestimates the effective use of
incentives as extrinsic rewards for good performance (Kunz & Pfaff, 2002).
Psychological Contract Theory
Psychological contract theory has been developed from social exchange theory.
Psychological contract theory is the idiosyncratic set of reciprocal expectations held
by employees concerning their obligations and their entitlements (McLean Parks,
Kidder & Gallagher, 1998). For example, the employee will work for an employer
with the expectation that they will receive something in return. Unlike agency theory,
psychological contract theory considers trust in the organization by assuming that
employees are honest and ethical. Misconduct occurs in an organization when the
psychological contract is violated with perceptions of injustice or unfair treatment in
the workplace (Kidder, 2005). In other words, honest and ethical employees may
commit acts of misconduct when they feel that they work in an unjust environment

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and that their trust has been violated (Morrison & Robinson, 1997; McLean Parks &
Kidder, 1994).
In terms of criticism, the theory is criticized on its ignorance of differences on
situational factors, such as moderating the effect of attractive factors to employees.
For example, when there is a violation of justice or fairness, the employee may choose
to leave the company for an attractive job elsewhere rather than commit misconduct
(Kidder, 2005; Turnley & Feldman, 1999).
Employee Misconduct
Misconduct is defined as any behavior that violates the law or organizational
ethics standards (Ethics Resource Center, 2005). In terms of ethics management in
organization, employee misconduct is a form of negative or unacceptable behavior by
employees that is detrimental or harmful to the organization (Kidder, 2005).
Employee misconduct or unethical conduct behavior has a wide range of levels of
impact upon an organization, ranging from small-scale dishonesty to corruption and
fraud for personal gain. Low impact misconduct includes small-scale misbehavior by
employees with no significant impact upon peers or organization. At this level, the
employee may merely deviate from organization norms or regulations, such as
spending an extra 5 minutes on break or occasional use of company telephone for
personal matters.
High impact misconduct covers illegal acts by employees that may impact the
organizations reputation, the loss of significant property or the threat of company
survival that require the organization to take immediate action. Such acts include
employee fraud, misuse of company property, disclosure of trade secrets,
embezzlement, sabotage of products or use of company property for personal benefit
(Ivancevich, 2007). From the organizations point of view, it is necessary to take
disciplinary action and preventive measures against high impact employee misconduct
that is harmful to others or the organization.
RESEARCH OBJECTIVES
To understand the reasons for employee unethical conduct with high impact to
organizations in large size companies in Thailand.
SIGNIFICANCE OF RESEARCH
In order to improve ethical conduct in organizations, there is a need for managers
to understand reasons for employee misconduct. Following literature review, there

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are conflicting results on available theories on business compliance and white collar
crime in organizations. This research attempts to identify operating themes from
recent phenomenon. This study aims to obtain the necessary information useful for
organizational leaders and human resource managers to understand employee
misconduct and to design preventive and corrective measures against misconduct. At
the same time, findings are important for future quantitative research for test of
universality.
In addition, a prior search of the available literature reveals that there has been no
similar study conducted in Thailand. Prior research in Thailand has focused on an
understanding of corruption practices and legal mechanisms for administrative
improvements, mainly in public management (Phongpaichit & Piriyarangsan, 1994;
Ockey, 1994). There is a need for an exploratory research in Thailand pertinent to
employee unethical conduct in business enterprise for improvement of ethics
management.
QUALITATIVE RESEARCH METHODOLOGY
Interviews were conducted among 8 human resource managers who have direct
experience of the management of unethical conduct, including the investigation of
misconduct, disciplinary action and employee terminations (Table 1 demonstrates the
Informant Profiles). Snowball sampling or use of referrals were used to identify
qualified respondents.
Table 1 Informant Profiles
Pseudonym Age Gender
Position
A
37
F
HR manager
B
42
F
HR & administration manager
C
43
M
HR Director
D
32
F
HR manager
E
F

42
35

F
M

HR Director
HR Manager

40

HR & Administration manager

38

HR consultant

Industry
Consumer Product
Paint manufacturer
Hard disk manufacturer
Electricity generating
contractor
Ice cream manufacturer
Beverage manufacturing
& sales
Electronics manufacturer
& exporter
Business consultancy

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Prior to interviews, respondents were informed about the research objectives,

methods and use of data. Respondents were asked to recall recent incidents of severe
employee misconduct that resulted in employee termination. It was requested that
respondents provide answers for cases in which they were directly involved in over
the past year. This is to ensure that the respondent can provide in-depth information
on the circumstances, motives and consequences of the misconducts.
The guidelines for the interviews are as follows:
y What incidents of severe unethical conduct occurred in your company that resulted
in termination? Please describe the circumstances.
y In your opinion, what were the main reasons for the misconduct happening? What
else?
With the permission of participants, interviews were recorded and transcribed.
Transcription was manually coded and analyzed to identify the emerging pattern of
various forms of employee unethical conduct. Interviews are conducted in Thai
language and English back translation was performed on respondent verbatim in the
findings. Inductive analysis was performed to generate common themes of reasons
(monetary incentives, social norms, process loopholes, small scale dishonesty and
pressure for employee performance).
RESEARCH FINDINGS
Findings
Regarding unethical conduct by employees, all respondents reported that
companies considered severe incidents to be intended misconduct involving cheating,
misuse of authority and dishonesty for personal gain. Almost all cases resulted in cash
equivalent benefits from misconduct and hence constituted severe breaches of
company work rules and code of ethics resulting in employment termination. There
was one reported incident of wrongdoing concerning misuse of company assets
(email).
Monetary Incentives
From the interviews, human resource managers reported that monetary
incentives are the most important motive for wrongdoing.
In my experience, the root cause of all misconduct involving financial
transactions comes from the desire for personal gain. Whether it be direct cash
pocketed as corruption or indirect benefit from use of position power to earn

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extra income from transactions, these employees have committed acts of

misconduct after calculating the benefits and assessing the risks (HR Director,
hard disk manufacturer).
Cash is cash. An employee can be tempted into committing a wrongful act if the
person has been working in the position long enough to understand the process
(HR and Administration Manager, paint manufacturer).

Induced by others

Social Norms
Process Loopholes
Small Scale Dishonesty

Long Service
at Current Jobs

Unethical Conduct
Resulting in
Employment
Termination

Pressure for Performance

Figure 1 Major Themes of Employee Misconduct from Qualitative Analysis

Social Norms
In some jobs, employees are required to report their services to the company in
order to get paid, whether on an hourly basis or per piece compensation. For control
purposes, companies have created administrative processes for employee selfreporting systems. As a result, the group of employees may see possible loopholes and
justify their acts of wrongdoing. Eventually, the misconduct becomes common
practice among the job holders and pervasive throughout the organization.
In my company, I found a driver who exaggerated his overtime report for
himself to get more regular overtime pay. During investigation, the wrongdoer
did not feel any guilty, and repeatedly reasoned that he was doing the same thing
as what others had been doing (HR manager, electricity generating contractor).
One time, a salesman cheated on the hotel bills as his allowance for upcountry
travel. In our company, we provide travel and hotel allowance of 700 baht per
night. That salesman got blank receipts from the hotel and wrote down the hotel
expenses without actually being present in that province. During investigation, he
said he had stayed overnight at friends home to save costs and benefited from the

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cash allowance from the company as extra income. This is what many salesmen
are doing in his region (HR manager, consumer product).
Process Loopholes
As regards the general reasons behind misconduct for financial gain, the theme of
process loopholes emerges from two main streams. Firstly, the employee may be
convinced into committing an act of misconduct by job stakeholder, especially from a
supplier or from a friend with the offer of mutual financial benefits. Secondly, the
wrongdoer tends to be a long-serving employee in their job position. They can be
highly educated, of a senior position and well-respected within the company.
Process loopholes as induced by supplier
I have received anonymous mail reporting corruption at our administration
department. The subject of the complaint was the administration manager in
charge of transportation who had been receiving monthly pay from our supplier
(kick-back money). The supplier issued an ATM card using a third persons name
to be given to the administration manager. On monthly basis, a sum of 20,000
baht would be deposited to that savings account, so that the administration
manager could withdraw the money freely without being traced. The transaction
was not made under the administration managers name. I think the idea must
have come from the supplier who had acted similarly at other companies. This
was well-planned. We could not have come up with any clue or evidence if the
anonymous mail had not reached us (HR Director, hard disk manufacturer).
Process loopholes resulting from long service
At the sales department, it was common to see the salesperson abuse their
authority for commercial purposes. For example, I was involved in the
investigation of a salesman who falsified his bad debt report. He deliberately
gained cash from the report of bad debt collection from the dealer (the company
suffered from loss of inventory). By doing so, he gained cash from the full
payment of goods from the dealer. The salesman had been with the company long
enough to understand the process and know the system of company monitoring.
He was smart enough to plan the transactions and get away with it in the past (HR
Director, ice cream manufacturer).
At a regional office, a cashier was given the authority to use petty cash of up to
5,000 baht for operation use. It was unlucky for her that we found the cash
missing (account did not balance) for three days in a row. The cashier lady

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refused to accept any wrongdoing on her part in the investigation. The day after
my visit as part of the investigation, she wrote me a letter to apologize. She
worked under the finance department and understood the rules, process and the
consequences of her actions well. The lady worked in the position long enough to
know how to take financial advantage (HR and Administration Manager, paint
manufacturer).
Process loopholes as induced by supplier and long service
Once, an anonymous mail was sent to report corruption in the purchasing
department. The purchasing manager was accused of receiving money from the
supplier for tooling purchase (assembling equipment). Human resource conducted
an investigation and found suspicious behavior. In such a short period of time, the
purchasing manager became wealthy and had mistresses. The investigation led to
a supplier who seemed to be related to one of his mistresses. Finally, a private
investigator was able to trace the money in question transferred to the mistresses
account and then later to the purchasing managers savings account. The
purchasing manager denied any wrongdoing, but was willing to resign to avoid
legal confrontation. I believe that the manager was in the position for a long time,
and knew the process well enough to take advantage. The bad news broke when
he was in conflict with the particular supplier, then an anonymous mail was sent
to the companys authority. Otherwise, there wouldve been little chance that
wed have known about the incident (HR director, hard disk manufacturer).
Small Scale Dishonesty
On occasions, managers are given responsibility for company property or assets.
In cases where assets are of low cost or little commercial value, the manager may feel
that it is alright to take some assets for personal use. The manager may justify the
wrongdoing by reasoning that such misconduct is small scale dishonesty that does no
harm to the company as a whole.
The customer relationship manager normally purchases various premiums (as
gifts) to be given away to consumers for marketing purposes such as consumer
promotion activities. The premiums vary in value from gift vouchers, hotel
coupons, spa treatments, free movie tickets, novelties, and so on. The company
found the budget to have been noticeably overspent and the stock of premiums
was unreasonably high. During the investigation of the customer relationship
manager, she confessed to taking possession of some of these premiums. The
main reason she gave was that some of the premiums may have expired without

Contemporary Management Research 136

being utilized. For example, movie tickets or spa treatments have expiry dates
and the company may not have been able to utilize them on time. The manager
felt that it was alright to use them for personal gain (HR manager, consumer
product).
Pressure for Performance
At managerial position, the employee feels some degree of pressure to meet job
expectations, such as meeting sales targets, performing correct budget expenditures,
conducting activities on time. These pressures may lead to unethical conduct by an
employee, whereby he/she has chosen to commit an act of misconduct in order to
fulfill the job requirement.
Last year, the brand manager was caught overspending the advertising budget in
December. She was spending the whole of the remaining budget of about five
million baht for printing material that was never used. A lengthy investigation
was conducted to understand how and why she did that. As brand manager, she
was given an approval limit of 20,000 baht per transaction. She managed to issue
numerous purchase orders to supplier (also her friends) and utilize all the budget
for the year. During investigation, she denied any wrongdoing, until human
resources threatened her with legal action. Upon confession, she claimed that she
had to spend all the money within the year because this is one of the key
performance indicators for the job. Even though, it is hard to believe that this is
the primary reason, there is some substance to it (HR manager, beverage
product).
QUALITATIVE RESEARCH CONCLUSION
The qualitative research findings indicate major themes in employee misconduct
within business enterprises, which are identified with personal or financial gain. The
main themes of misconduct as reported by human resource managers are social norms,
process loopholes, small scale dishonesty and pressure for performance. From these
findings, the qualitative information suggests that the reasons for employee unethical
conduct are consistent with those provided by psychological contract theory and
agency theory.
Of the themes emerging from this research, social norms and pressure for
performance are consistent with psychological contract theory as previously found by
Veiga, Golden & Dechant (2004) in their U.S. study. For process loopholes and small
scale dishonesty, the themes are consistent with agency theory where the employee is

Contemporary Management Research 137

an opportunistic individual that seeks to maximize personal gain whenever possible

(Kidder, 2005).
DISCUSSION AND MANAGERIAL IMPLICATIONS
This research attempts to investigate managerial perceptions of employee
misconduct in organizations. The research findings reveal that employees committed
acts of unethical conduct because of greed, financial benefit, or other individual
motivations. The findings indicate that there is a lack of effective monitoring
mechanisms in Thai business enterprises to discover employee misconduct and
corruption. Managers generally become active on employee misconduct only after
receiving anonymous mail or reports of misconduct.
Based on the basic premises of agency theory, Rousseau and McLean Parks
(1993) suggest that people act in their self-interests and balance the risk with
consideration of the situation. The implications from the research findings to top
management and human resource managers are that they need to ensure proper
management control systems to minimize any wrongdoing. McKenna (1994) has
suggested companies perform monitoring or create control mechanisms within the
company to reduce or discourage misconduct. In addition, periodic review of rules and
extensive communications are required to ensure compliance with business practices.
FUTURE RESEARCH
For future research, it would be useful to investigate this subject further in
different aspects. Firstly, a quantitative survey can be conducted to identify reasons
for employee misconduct by comparing employee profiles and job profiles. For
example, the research findings have found that employees may enter into misconduct
after a number of years of service when he/she is able to identify a loophole in
company transactions. It would be useful for human resource manager to use the
information for organization design and policy.
Secondly, it would be useful to adapt a multidisciplinary approach to understand
and predict employee unethical conduct, such as learning from psychology and
criminology. Further exploration into other fields will enable human resource
professionals to understand the root causes of misconduct. The integration of different
bodies of knowledge would be useful to improve measurements and preventive and
corrective actions for unethical conduct.

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LIMITATION OF THE STUDY

This research aims to explore the reasons for employee unethical conduct by
conducting personal interviews with eight human resources managers in large size
business organizations. The analysis and findings are useful for further confirmation
by future quantitative study. The results and implications are limited to generalizations
of all business communities in Thailand.
This paper presents the views of human resource managers without consideration
of views of employees. Therefore, the findings are subject to the limited viewpoint of
those with authority rather than the viewpoint of the wrongdoers, which may be
influenced by other potential pressures from the organizations environment.
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